Duerr AG

XETRA:DUE

Earnings Call Analysis

Strong Q1 2024 Performance Highlights Future Growth Prospects

Durr had a solid start to 2024 with record order intake of €1.5 billion, driven by a significant automotive project in Germany. Sales revenue increased by 8.3% to €1.1 billion, and the EBIT margin improved to 4.9%. Free cash flow was €25 million, supporting the full-year guidance. The consolidation of BBS Automation and Ingecal added €79 million in sales. Despite HOMAG's 14% sales drop, demand for other divisions remained stable. The company aims to achieve a 5% to 6% compound annual growth rate and surpass €6 billion in revenues by 2030.

Strong Start to 2024 with Record Order Intake

The earnings call revealed a strong performance in Q1 2024 for Durr AG. A new quarterly record order intake of €1.5 billion was achieved, slightly exceeding the previous year's levels. This growth was primarily driven by the automotive sector, where Durr secured a significant project in Germany. The company maintained a solid order backlog of €4.6 billion, indicating robust demand moving forward.

Revenue Growth and Financial Performance

In terms of sales, the company experienced an 8.3% year-on-year increase, bringing revenues to approximately €1.1 billion. The book-to-bill ratio stood at 1.36, indicating that the company is booking significantly more orders than it is completing. Notably, the EBIT (earnings before interest and taxes) before extraordinary effects improved by 27%, amounting to €53.5 million, while the EBIT margin rose from 4.1% to 4.9%. This improvement aligns with the company's full-year guidance, showcasing effective management of both costs and operational efficiency.

Divisional Performance Insights

Looking at divisional performances, the Application Technology and Clean Technology Systems divisions commenced the year on a strong foothold. Organic growth was observed across all divisions, although HOMAG faced challenges, demonstrating a 14% drop in sales due to declining P&L dynamics. Despite this slowdown, service revenues remained steady, a factor the company is prioritizing for future growth.

Focus on Financial Discipline

Durr reported a solid free cash flow of €25 million in Q1, contributing positively towards the annual target of €0 to €50 million. This was underpinned by effective management of working capital as net working capital declined slightly to €531 million. Furthermore, net financial debt was reduced to €493 million, demonstrating a prudent approach to managing finances after the acquisition of BBS Automation.

Future Outlook and Strategic Guidance

The company confirmed its 2024 guidance, expecting stable growth despite current market condition challenges. Specifically, Durr targets a revenue growth of 5% to 6% and an EBIT margin of at least 8% over the midcycle. It also expressed optimism about the battery business, eyeing high-value projects and long-term synergies from recent acquisitions.

Capital Management and Investment Strategies

Recent activities included the issuance of a €350 million green Schuldschein loan aimed at financing sustainable and efficient production measures. This financial maneuvering, alongside prudent capital utilization strategies, illustrates Durr's commitment to not only enhance its revenue but also improve its sustainability impact.

Addressing Market Challenges and Competition

Durr acknowledged the impact of competitive pressures and economic contexts, particularly referencing a slowdown in certain regions like China. However, the company remains positioned strategically to adapt to shifts in demand and maintain its foothold amidst competition, particularly in the technology and automation sectors.

Conclusion: A Balanced and Forward-Looking Approach

In summary, Durr AG's Q1 2024 results illustrate a strong start to the year characterized by record order intakes, solid financial performance, and strategic financial management. Their ongoing focus on enhancing service revenues and addressing market nuances conveys confidence for maintaining growth momentum as the year progresses.

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to the Durr conference call. Dr. Jochen Weyrauch, CEO; and Dietmar Heinrich, CFO of Durr AG will present the Durr Group's figures for the first quarter of 2024, followed by a Q&A session.I will now hand over to Andreas Schaller, Head of Investor Relations of Durr AG.

[Andreas Schaller, executive]

Good afternoon and good morning, ladies and gentlemen. Welcome everybody to our Q1 earnings conference call. As just mentioned, with me on the call today, our CEO, Jochen Weyrauch and our CFO, Dietmar Heinrich. And they will present the Q1 results, as well as the outlook and we'll be happy to answer your questions afterwards. As always, our earnings presentation is available on our Investor Relations webpages and we assume that you have it in front of you. Please be aware of our disclaimer regarding forward-looking statements on Slide 2.And now it's my pleasure to hand over to our CEO. Jochen, please go ahead.

[Jochen Weyrauch, executive]

Thank you, Andreas for the short introduction, and very warm welcome from my side to all participants on this call. Let's take a look at the highlights of Q1 on Slide 4. Overall, we had a very solid start into 2024. We achieved a new quarterly record order intake of EUR 1.5 billion. This was slightly higher than the previous record level that we reached in Q1 of last year. The main driver of the strong order intake was our automotive business where we booked a large project in Germany that we had predicted already enough last year.The pipeline for Q2 and beyond is very solid, which means that the current underlying demand continues to be good. At HOMAG, order intake was supported by several larger projects with long-lead times. Underlying demands has not changed, and we continue to expect an improvement not before the end of this year, as we had already mentioned previously. Consolidation of BBS Automation, that we had acquired end of August last year, supported the order intake as well. As a result, the order backlog grew to EUR 4.6 billion which also is a new record level.Sales revenues were up 8.3% year-on-year to about EUR 1.1 billion. The book-to-bill ratio stands at 1.36 for the first quarter. The EBIT before extraordinary effects reached EUR 53.5 million, the respective margin improved from 4.1% to 4.9%, which is in-line with our full year guidance. Our divisions, Application Technology and Clean Technology Systems started into the year with pretty high margins. Free cash flow was solid in Q1 supported by the continued discipline Networking Capital Management. Based on the results, of Q1 we confirm our outlook for 2024.On Slide 5, we see the key financial indicators for Q1. Order intake increased by 2% compared to last year's record levels, and includes a consolidation effect of about EUR 74 million. The 8.3% sales growth was also supported by the consolidation of BBS Automation and Ingecal, which contributed EUR 79 million and thus more than compensated for sales decline at HOMAG of almost 15%.In addition, all other divisions grew organically. EBIT before extraordinary effects improved by 27% and the margin by 80 basis points. The margin weakness at HOMAG was more than compensated by margin improvements at all other divisions. Net income, however, declined by 4% due to higher PPA effects following the BBS Automation acquisition and higher interest costs. The solid free cash flow of EUR 25 million means that we are well on track to reach the full year guidance. Last year, we had an extraordinarily high Q1 free cash flow, reflecting very high prepayments.Let's take a closer look at the order intake on Slide 6. I already mentioned the large automotive order that we booked in Q1 as expected, as well as, the consolidation impact from BBS Automation and the project business at HOMAG. And Clean Technology Systems orders were higher than the last 3 quarters. The automation business had a slower start into the year, but the pipeline looks promising. All-in-all, order intake saw a strong start into the year, putting us well on track to reach the full year guidance.On Slide 7, we see the geographical distribution of order intake. The large automotive order in Germany is clearly visible. The order intake declined in the Americas and the rest of Europe was driven by high base effects from last year. The slowdown in China reflects the current economic development in the country. Asia, also outside of China, remains stable.Let's have a look at our most recent M&A activity. After 7 years of smaller and larger acquisitions, we announced the divestment of Agramkow. The subsidiary belonging to Industrial Automation Systems that supply systems for filling refrigerators, air conditioning systems, and heat pumps. Last year's revenues were about EUR 45 million, and Agramkow EV stands at EUR 47 million.As already mentioned several times, we continuously review our business portfolio and are willing to dispose of business activities if they offer insufficient scope for harnessing synergies. Agramkow's business has few synergies with other parts of the group, and as such, is no longer part of the strategically relevant core business. We expect the closing of the transaction by the end of the second quarter, after completion of the carve-out. Based on the expected proceeds from the sale, we adjusted our guidance for net debt by EUR 40 million to between minus EUR 500 million and minus EUR 550 million.Now let's have a look at the divisional development. We start with Paint and Final Assembly Systems on Slide 10. Order intake was close to the record level of last year, driven by the already mentioned large order. The project pipeline remains solid and is also mainly driven by modernization investments in connection with sustainability measures. Such the current slowdown in the transformation towards EVs, which we regard as temporary, does not play such an important role. Sales grew strongly from a low prior year's level and service grew stronger than equipment.The EBIT margin before extraordinary effects improved slightly compared to last year, and we expect a further acceleration of sales and EBIT margin with projects reaching more advanced execution phases in the course of the year. All-in-all, Paint and Final Assembly Systems is on a good track to reach the margin target in 2024, which is in line with our midcycle margin target of more than 6%.Let's turn to Application Technology on Slide 11. Order intake was driven by the same large project as in Paint and Final Assembly System, and reached a new record level of EUR 262 million. Sales revenue grew by roughly 2%, but services outgrew equipment and had a positive impact on EBIT. Driven by the strong service business and the execution of high-margin projects, the EBIT margin before extraordinary effects reached the mid-cycle target level of 10% plus.Next is Clean Technology Systems on Slide 12. Order intake did not reach the extraordinary high level of last year but exceeding the levels of the last 3 quarters. The new calendaring machines from Ingecal, the French company acquired in November 2023, see good demand, and we are focusing on getting the first large order for our electrode coating equipment for batteries.Sales revenues grew double-digit, driven by projects in Europe and the USA. The service business remained stable on a high level. At 7.7%, the EBIT margin before extraordinary effects was at a high level in Q1, exceeding the midcycle target. Also here, a good service and the execution of high-margin projects were the key contributors. We continue to see a lot of potential in the battery business and are working very diligently to gain market share in this market.On Slide 13, we can see the development of our youngest division, Industrial Automation Systems. Financial KPIs of Q1 were supported by the consolidation of BBS Automation. Order intake in Q1 included larger orders in China, but has not reached the targeted run rate based on our full year guidance. We expect an acceleration in Q2, on the basis of a solid budget pipeline.Sales revenues were also driven by organic growth as project execution was supported by improved availability of parts. The EBIT margin before extraordinary effect improved significantly compared with last year, but was still impacted by some low-margin legacy projects. We expect these to washout over the next quarters and the margin to improve [ accordingly ]. Our focus at Industrial Automation Systems is on realizing the synergies on top and bottom-line level, and to be projects based on the critical mass that we have gained through the acquisition of BBS Automation.Last but not least, let's take a look at HOMAG on Slide 14. Order intake reached EUR 377 million, which is an improvement over last year. However, the growth was driven by a couple of larger order intakes while the underlying demand dynamics have not changed yet. As such, it is still too early to become more optimistic, and we continue to expect an improvement in demand not before the end of this year. The impact of the decline in order backlog became visible in Q1 sales revenues, which dropped by 14% and thus in line with expectations. On the positive side, service revenues continue to hold up well.Due to the lower capacity utilization, the EBIT margin before extraordinary effects declined to 3.1%, meeting the full year guidance of between 2% and 4%. We are using flexible measures like short-term work and the reduction of time accounts to compensate on the cost side. In addition, we are on track with our sustainable cost-saving measures on a global map. We already reached our target abroad and in Germany, the voluntary leave program is currently running. We are on track with our cost savings target of EUR 25 million in 2024 and to realize additional EUR 25 million in 2025, in order to lower the cost point by EUR 50 million in total.Now let's move on to the service business on Slide 15. In Q1, service sales reached a level of more than 29% of overall sales. Service development was strong in automotive, but also at HOMAG, the service share held up very well. The service mix shifted a bit from spare parts to modifications, and the margins further improved. We continue to focus on growing our service business as an important factor to improve our margin.Now, Dietmar, I hand over to you for the financials.

[Dietmar Heinrich, executive]

Thank you, Jochen, and welcome to everybody also from my side. I'll start with Slide 17 and an update of our ROCE definition. ROCE is one of our key KPIs, when reviewing the previous definition, we came to the conclusion that we should close the link at ROCE calculation to our operational performance and our internal steering model. As a preparation, we interviewed several analysts and performed the peer group analyzed on capital goods companies.So this is what we have changed. First, we moved from reported EBIT to EBIT before extraordinary effects in order to better reflect the operational performance. At the same time, we increased the scope of assets and liabilities included in the capital employed calculation. This means our network and capital steering better to the ROCE calculation and increases the amount of capital employed. Finally, we move to a rolling 12-month view for both EBIT before extraordinary effects and capital employed. Previously, we used the year-to-date view for EBIT and a period-end view for capital employed.When you compare the old with the new calculation, you only see a small effect for 2022, with extraordinary effects here relatively low. The effect is larger in 2023 as we eliminated the extraordinary effects of the HOMAG restructuring, and taking into account for [indiscernible] effect of acquisition of BBS Automation on capital employed. The target for ROCE for 2024 was also recalculated and the guidance range is now at between 12% and 17%. This is basically in line with the target of 9% to 14% according to the previous definition. In the long term, this extra EBIT before extraordinary effect and the increased scope of capital employed are at roughly balance, which is why we leave the mid-cycle target of at least 25% unchanged.Now let's look at the financial overview on Slide 18. I think the start in 2024 was very solid regarding our [indiscernible]. The ROCE according to the new calculation stood at 16.9%, which is a bit lower than last year due to the increased capital employed following the acquisition of BBS Automation.On Slide 19, you can see the revenue development over the last 5 quarters. The typical seasonal pattern is very well visible when you look at 2023, with a weaker Q1 and a strong finish in Q4 to many projects [indiscernible] quarter end. Looking at the geographical distribution, we see that China continued to lose share that was partially made up by Europe and the rest of Asia.Let's move to EBIT on Slide 20, again, you can see the seasonal development in 2023. This year, we started on a higher margin level of 4.9% before extraordinary effects, which is already in line with the guidance. The expected margin decline at HOMAG could be compensated by the other businesses and a strong service performance. We continue to focus on the consistent implementation of our cost-saving measures at HOMAG, as Jochen has also already highlighted.On Slide 21, we can see the free cash flow development. Last year, we had a very strong contribution from several prepayments to free cash flow in Q1. This year, we managed to further reduce net working capital, but on the other side, had a higher cash outflow for CapEx and interest payments. Still, with EUR 25 million, we had a solid start into the year and a good contribution to our target of EUR 0 to EUR 50 million for the full year.The latest development of net working capital can be seen on Slide 22. Net working capital declined slightly and to reach EUR 531 million at the end of Q1 in 2024. The liabilities remain basically unchanged in higher prepayment, the prepayments being offset by lower trade payables. On the asset side, we saw a reduction in trade receivables and contract assets. Days working capital remained in the lower half of our target range of between 40 and 50 days.On the next slide, Slide 23, we can see the positive impact of the free cash flow on our net financial status. Net financial debt declined to EUR 493 million at the end of Q1 2024. This includes EUR 118 million of leasing liabilities. Leverage was reduced slightly and now stood at 1.5x, which is in line with our target of less than 2x. We regard our balance sheet as solid, also after the acquisition of BBS Automation. Nevertheless, we are prudent with our financing approach and we also focus on deleveraging and looking at capital utilization.Prudent financing approach is also reflected in some actions we took after the end of the first quarter. First of all, we issued a green Schuldschein loan with a volume of EUR 350 million. The details can be seen on Slide 24. To proceed our earmarked for investment into green projects and for operating expenses in connection with taxonomy-aligned customer project such as production lines that are far more efficient than industry standards. The Schuldschein tranches of 3, 5 and 7 years and the average interest rate is at 5.04%, with a maturity of 5.1 years.As we still have older Schuldschein loans with lower interest rate, the average interest rate of our debt is currently at 3.57%. Based on the strength and liquidity situation, will be fully repaid at the end of April, the bridge to around EUR 300 million that we had used for the acquisition of BBS Automation.On Slide 25, we can see the pro forma maturity profile and liquidity situation, considering the green Schuldschein and repayment of the bridge loan. The liquidity headroom remains very high, and the maturity profile now looks well balanced over the coming years. With available funds of EUR 1.8 billion, we are confidently positioned to repay the upcoming maturities.And with this view from the financial side, I hand back to Jochen, for the outlook.

[Jochen Weyrauch, executive]

Thank you very much, Dietmar. On Slide 27, we can see the fundamental demand drivers for our business, particularly the first one has strongly supported order intake in Q1. There are still a lot of old paint shops around, and therefore, we see a solid pipeline for refurbishment projects. The [ supply ] and demand driver seems to have slowed down a bit last year when looking at EV production numbers and housing stuffs. However, we are not so much dependent on current production levels and believe that the fundamental transformation towards the carbon-neutral society goes on and so will investments in this area.In the automation area, we have now reached a critical mass and have interesting discussions with customers regarding potential projects in all areas, automotive, MEGTEC and consumer. Therefore, we are well positioned with our leading resource efficient technologies to supply attractive solutions to industry and craftsmanship.Let's look on our guidance for 2024 on Slide 28. We confirm our targets for 2024, except for net financial debt, where we adjusted the guidance range by EUR 40 million due to the positive effects from the divestment of Agramkow. The ROCE target values have been recalculated according to our new definition, but are in line with the targets of the previous definition. We had a strong start in order intake. But as we could see from last year, it makes sense to leave some flexibility in order to react to different market environments and to be able to remain selective. We focus on winning projects in automation and stabilizing utilization at HOMAG, while at the same time, implementing our capacity adjustments.On Slide 29, we can see the breakdown of the guidance by divisions. There is no change to these targets. Our unchanged midterm strategy for profitable growth is shown on Slide 30. We believe we can grow with a compound average growth rate of 5% to 6% and reached more than EUR 6 billion of revenues by 2030. Mid-cycle, we target the EBIT margin before extraordinary effect of at least 8%, and the ROCE of at least 25%.Now let's summarize on Slide 32. We achieved a new quarterly record for order intake in Q1, mainly driven by a large order as expected. Revenue growth is on track. The weakness at HOMAG was more than compensated by organic growth in the other divisions and the consolidation of BBS Automation. The EBIT margin before extraordinary effects had a good start, especially at Application Technology and Clean Technology Systems. Free cash flow was solid. We strengthened our financial structure with the green Schuldschein and repaid our bridge finance. And finally, we confirm our guidance for 2024 with a lower net debt target following Agramkow divestment.Thank you very much for your attention. Now we're very happy to answer any questions you might have.

[Operator]

[Operator Instructions] The first question comes from Sven Weier, UBS.

[Sven Weier, analyst]

The first one is a question on the order intake because I think in the press release, you stated that you also expect a high order intake for Q2. And I think that was a bit different last year when Q2 was really substantially lower than Q1. So in that sense, I just wonder if you could share kind of a guidance range for us, what we should pencil in for Q2. And then this would probably then imply a significant decline for the second half. But then you say the pipeline is good. So yes, maybe some more color on the order guidance? That's the first one.

[Jochen Weyrauch, executive]

You might excuse that I'm answering a bit, how should we say, generic. So we have a number of projects that are around the verbal order stage, let's say. And thus, we have a very good feeling that Q2 will be good. It will be definitely better, especially on the automotive side than last year. And how things then further distribute over the year, we will have to see. Nevertheless, we are with what we see right now, when we are close to orders that Q2 will on the automotive side, especially the -- at least an okay quarter, difficult to give a number at this point.

[Operator]

Okay. There are currently no -- yes, okay, Mr. Weier?

[Sven Weier, analyst]

Sorry, I was on mute. Can you still hear me?

[Operator]

Yes.

[Sven Weier, analyst]

Sorry. I didn't want to be rude and not thank you. But I had another question. And that was just was on the HOMAG margin because there is a sequential margin decline. I mean, I know you had lower revenues, but the operating leverage seems quite, quite high, to be honest. I was wondering that you have a very good mix in Q4 and a very bad mix in Q1 that was adding to this sequential decline or something to keep in mind?

[Dietmar Heinrich, executive]

[ Sven, it's Dietmar ]. We had a good development in the third and fourth quarter of last year, service business is still going well. You could see that it's also on the respective chart. In regard to the business, there are basically 2 levels that are pushing down the profitability. This is on one side, the sales decline versus a gross profit contribution and then the related uncovered fixed cost. So the ideal costs that we are having. So that's why we are getting down to the level of 3%.On the other side, it's well in the middle a bit of what we announced as the guidance for the full year between 24%. So from our point of view, it's developing in line with the expectation. Jochen also outlined regarding the progress on the capacity or the resource adjustment program. So we've got more momentum now in the coming weeks, and you could also see on the free cash flow, that there might not yet be March free cash outflow coming from the headcount reduction. So this will come actually in the coming months. And accordingly, I hope that we will get then a better fixed cost coverage with lowering the fixed cost.

[Operator]

The next question comes from Nicolai Kempf from Deutsche Bank.

[Nicolai Kempf, analyst]

Nicolai Kempf, Deutsche Bank. Two questions from my side. First one on the kind of shift in power trend you are seeing right now and especially on big premium manufacturer at Stuttgart has their all electric vehicles will probably sell at a slower pace than initially expected, and this could just be longer investments in their plug-in hybrids and also in their gas diesel powertrain. How could this impact you? Or does it impact you at any instance?

[Jochen Weyrauch, executive]

Nicolai, you want to give us your second question, too, and then we'll try to answer together.

[Nicolai Kempf, analyst]

Yes, sure, fine. Second one would be on raw mat has been a pretty big headwind over the last years now coming down. I do remember that you have started to have index contracts. Does this mean that you would have to soon maybe grant discounts or just lower your input costs for this new contract?

[Jochen Weyrauch, executive]

Nicolai, we're not sure we perfectly got the questions realistically, if I'm not answering what you were asking, please interfere. So on the large order that we have received, I mean I'm not -- I cannot and I would never comment on any customer/clients activities or changes, et cetera. The one thing that I can say is that the strategic partnership that is in place and is for projects that are not purely the production line. So that's where I'm saying, well, as long as cars are produced, then, I'm positive. That's what I can say at this point, no indication at the moment at least nothing that we see of changing plans. But again, I cannot comment for customers.Your second question, that's the one where I probably did not perfectly catch. You were referring to price index projects in automotive. Is that right?

[Nicolai Kempf, analyst]

Yes. It's referring just to input prices because input prices are coming down and whether you have to already pass them on to your end customers because of index projects.

[Jochen Weyrauch, executive]

Yes, to some extent, we do, but that's fine because this is how we calculate in those contracts. And I'd rather have an even more happy customer by reduced CapEx in some instances without an impact on our margins. So yes, we see this on some contracts that we signed probably closer to the peak of the commodity prices, which in some cases have now come down, but this is exactly what we wanted to achieve, to be resilient against cost changes. Obviously, that resilient works both ways.

[Operator]

The next question comes from Philippe Lorrain from Bernstein.

[Philippe Lorrain, analyst]

I've got a couple of questions. Let's start maybe with order intake and that would be by division. So HOMAG's order intake looked quite sound at EUR 377 million in Q1. You mentioned that in the presentation that was supported by good development in systems. How much of the order intake was actually coming from systems in Q1? And how does it compare to the typical share of system orders? That would be like the first one on HOMAG. And then also, are there any significant orders inflating the Q1 numbers, especially if we compare that to the past quarters that we had there?And maybe to stick with order intake as well on PFS and APT. By how much did the large order support the Q1 PFS and APT order intakes, respectively, please?

[Jochen Weyrauch, executive]

For HOMAG, the EUR 377 million, and I would say we've had like close to EUR 100 million of systems or larger orders in there, which is a higher share than we would typically have. This is why we've been somewhat cautious in using this relatively okay order intake numbers then extrapolate then for the year in terms of showing a situation that would look better than we had anticipated it. So that's why I made the comments in my speech, that we don't see a change of the trends at HOMAG at this point.PFS and APT, the large order that we booked is pretty much, how should I say, middle-triple digit, whatever number for both. If you take a normal share of distribution between APT and PFS of somewhere between 1/3 to 1/4 for APT that would fit this project, maybe a bit closer to 1/3.

[Philippe Lorrain, analyst]

Let me stick perhaps with HOMAG just a little bit. So you comment that the share of systems is higher than typically. Could you put some color behind that? Is it like twice as much? Or is it less than that? So it's just to put that in context? And maybe as well, like give us a little bit of color on how to think about quarterly order intake run rate for the remainder of the year?

[Jochen Weyrauch, executive]

Well, the latter one is very difficult to say. Obviously, what we do is we stick with our guidance. And your assumption for how much is systems compared to a normal run rate, yes, the assumption of it being maybe double of what we typically have would be about accurate.

[Philippe Lorrain, analyst]

And last question would be more like a housekeeping one. You mentioned in your preparatory comments that there was a EUR 74 million, I think, so EUR 74 million consolidation effect on order intake from both BBS Automation and I guess, Ingecal. You mentioned a little bit as well, I think, on sales and adjusted EBIT. Could you repeat that because the line was -- yes, it stay like quite difficult.

[Dietmar Heinrich, executive]

Okay. Now the number as you outlined, is it then for both together, it's around -- in regard to order intake of around EUR 65 million to EUR 70 million. Ingecal is around EUR 4 million to EUR 5 million out of this. So this is in line with the development that we had in the last year, then on a pro forma basis in the first quarter.

[Jochen Weyrauch, executive]

And sales are about the same.

[Dietmar Heinrich, executive]

And sales is about the same, sales is a bit higher due to the good order then so altogether, sales amount would be in a range than of around close to EUR 75 million to EUR 80 million.

[Operator]

[Operator Instructions] The next questioner is Peter Rothenaicher from Baader Bank Helvea.

[Peter Rothenaicher, analyst]

I have a question on Industrial Automation. So you mentioned order intake in the first quarter was relatively low. Can you give us an indication what can we expect here, a significant upturn in the second quarter? And might there be the risk perhaps later this year of some underutilization of capacities at BBS?

[Jochen Weyrauch, executive]

Yes, we have, obviously, we're aware of a few larger orders that would really be a double-digit project where we're confident that in the second and partial in the third quarter, with the visibility that we have that we are very likely to book a few of those, which makes us confident. Underutilization, no, we're not seeing this in a large way. Typically, industrial automation where we have not a lot of machinery and we are relatively flexible. Can I say there is none -- there always is some underutilization coming from the project nature of the business, but I'm not expecting anything extraordinary, so.

[Peter Rothenaicher, analyst]

And might this have some effect on earn-out regulations for BBS?

[Jochen Weyrauch, executive]

No, because the earn out would have been relevant looking back at last year.

[Peter Rothenaicher, analyst]

And so one question on your battery business. You mentioned you are here in negotiations and discussions about a bigger order. So what is your current view? And what size might have such a bigger order?

[Dietmar Heinrich, executive]

On the battery business, that might be well double-digit order.

[Peter Rothenaicher, analyst]

And how clear is it? Is this something you're already expecting now for the second quarter? Or might it take longer?

[Jochen Weyrauch, executive]

I'm quite positive, but I cannot assure that this is going to happen in the second quarter, we will have to see.

[Peter Rothenaicher, analyst]

And lastly, regarding HOMAG and these systems orders. Do we have to be aware that profitability of this system orders is typically lower than machinery business and therefore, have some impact also on profitability?

[Jochen Weyrauch, executive]

No, no this -- no. I cannot say -- at least there is one order, a large order in there where I know that the margin is quite healthy. So now I understand where you're coming from, and it's a fair assumption, but I cannot confirm that for the larger orders in total that we have received.

[Dietmar Heinrich, executive]

Peter, there is no specific risk in regard to what we provided as a guidance. The influence from the system project is that this will not lead to a sale business or sales revenues within a short period of time, but the ROCE execution has been spreading up to 2 years. So that's also why we highlighted that on one side, we expect, first of all, a significant change in the expected order dynamics for this year, towards the end of the year, then so why we stay with the guidance. And secondly, the adjustments need to be done. We do not expect now the system or this mentioned system order coming in or the pickup of sales within a short period of time because it's spread in over up to 3 years.

[Peter Rothenaicher, analyst]

One final question on Paint and Final Assembly Systems. I think with Q4, you mentioned that the one or other project has been lost to a competitor. I think it was [ Gelco ] How is the situation there? Is there still some risk of this competitor might be price aggressive also than in upcoming quarters?

[Jochen Weyrauch, executive]

So Peter, it's difficult to comment on competition. And I don't know, honestly. And I think what you see now with Q1 and with our tables regarding Q2, we are continuing our strategy, which I think more and more now materializes in the numbers. And we will see what our -- what competition does. And obviously, we appreciate competition because it's also a way to show our customers where we are. And we will have to see, honestly.

[Operator]

And the next question comes from Christian Cohrs, Warburg Research.

[Christian Cohrs, analyst]

Three left for me. First, after the sale of Agramkow. Do you have more divestments on the agenda? And then 2 questions regarding clarification on the corporate center. The number of employees has risen by more than 140, Q1 versus Q4 last year. So maybe you can shed some light on that? And lastly, R&D expenses have come down more than EUR 4 million. Are you more restrictive with regards to R&D also to safeguard your results? Or is this simply, yes, quarterly fluctuation, which should not be overstated?

[Jochen Weyrauch, executive]

On the divestments, I can only repeat what I said earlier in this call, we continue to reflect on the portfolio. And whenever we come to any idea that we're going to execute, of course, you will know, but I cannot comment anymore on this. On R&D, this is more, I would say, a normal fluctuation. We, of course, we always watch where we spend the money on for the future, but we have nothing restrictive in place where we harm activities going forward.

[Dietmar Heinrich, executive]

Yes, I actually mentioned or I can explain in that regard. We have employees that are actually have been allocated to HOMAG in a shared service area. But they did not only going for HOMAG, they're also going for other group activities, division activity, and we changed this allocation. So that they now are shown actually as corporate and or corporate services.

[Operator]

And the next question comes from Holger Schmidt, DZ Bank AG.

[Holger Schmidt, analyst]

The first question is on the Industrial Automation business. Here, you mentioned that the margin development was impacted by the execution of legacy projects, for how much longer will we see an impact from legacy projects? So that's the first question.And the second one is also on margin evolution. How should we think about the margin development throughout the quarters in the current year at HOMAG?

[Jochen Weyrauch, executive]

On Industrial Automation Systems, the legacy projects that we're referring to, if you will, all the projects with Teamtechnik, and I would expect those to completely work out during the course of this year.On HOMAG, on the margins, I mean, as we reported over pretty much in the middle of our guidance for Q1. EBIT numbers might or return on sales might fluctuate a little bit quarter-by-quarter. But also, as mentioned, we assume and we will maintain our guidance for the total year of between 2% and 4%. And there is a mix, as Dietmar was explaining before, on the one hand, we've been implementing flexible measures like short-term work now, while we're executing our restructuring program. So the capacities will go down while we then benefit from short-time work so much anymore. And this will -- one play against the other. But with our assumption, as we said before, that the total year will be in between 2% and 4%. That's unchanged.

[Operator]

[Operator Instructions] Let me hand back to Andreas Schaller for some closing words.

[Andreas Schaller, executive]

Thank you very much, ladies and gentlemen, for your attention, for your questions. If you come across further questions after the results, please do not hesitate to contact my colleagues or myself on Investor Relations. And we are looking forward to staying in contact with you. And with that, I would like to say good bye to you all, and have a nice rest of the week. Thank you very much. Bye-bye.

[Operator]

Thank you for participating in the conference call. This call is now closed.